- We maintain our BUY call on IJM Corp with our fair value remaining unchanged at RM7.95/share pegged at a 10% discount to its RNAV.

- For the quarter, IJM reported a core net profit of RM141mil, a marginal decline of 3% QoQ. This took 1HFY14 core earnings to RM278mil (-9% YoY) or c.43% of our full-year estimates.

- The lower YoY earnings was attributable by a marked 44% YoY drop in construction billings, lower contributions from the property & industries divisions as well as higher effective tax rates (29% in 1HFY15 vs 20% in 1HFY04).

- We however maintain our core net profit forecast of RM647mil for FY15F. This being the case as we expect a pick-up in construction billings in the coming quarters as the weight of new jobs gets more pronounced, notably for the first RM2.8bil package that IJM has secured from the West Coast Expressway project.

- Despite the shortfall in billings, construction earnings actually expanded c.2.5x YoY to RM94mil as margins recovered to c.19% vs 4% a year ago, although this was partly attributable to favourable forex movements.

- Property revenue improved 11% YoY on higher billings from the Shah Alam 2 as well as Bandar Rimbayu projects. Earnings, however, fell 7% YoY on unfavourable forex positions. Unbilled sales was c.RM1.8bil.

- The gains from the plantation division largely came about from higher CPO and product prices.

- Elsewhere, the aborted proposal to acquire the SILK highway could dent sentiment on IJM’s share price in the near term.

- There is, however, no impact on our earnings forecast, as we have yet to account for any contributions from SILK.

- IJM declared an interim DPS of 4 sen for the quarter. As a result, the cash portion for its proposed takeover offer of IJM Land will be raised from RM0.20/share to RM0.22/share.

- Apart from the privatisation of IJM Land, we see several catalysts that could lift IJM’s NAV in the coming quarters:- (i) more opportunities from the second package of the WCE (RM2.2bil); (ii) Phase 1 of the Kuantan Port expansion & Malaysia-China Kuantan Industrial Park (MCKIP); and (iii) Phase 2 of The Lights project in Penang.

Source: AmeSecurities